Mid Ocean Ltd.'s board of directors have approved a shareholder rights plan which would deter an unfriendly takeover.

The move, known as a "poison pill,'' is designed to thwart unfriendly attempts to gain control of the Bermuda-based property catastrophe reinsurer by making stock more expensive for a raiding company or individual.

If a company or individual acquires 20 percent or more Mid Ocean common stock, the rights plan is triggered, causing dilution.

Dilution acts as a deterrent because a raider now needs to buy that much more stock for the same stake in the company.

EXEL Ltd.'s 29.8 percent stake in Mid Ocean has been grandfathered in the plan. EXEL, which has a similar shareholder rights plan, is a founding shareholder of Mid Ocean.

Mid Ocean's rights plan will "enhance the board's ability to protect shareholders against, among other things, unsolicited attempts to acquire control of Mid Ocean that do not offer adequate price to all shareholders or are otherwise not in the best interests of Mid Ocean and its shareholders,'' Mid Ocean said.

"The rights are intended to enable all Mid Ocean shareholders to realise the long-term value of their investment in Mid Ocean,'' Mid Ocean president and CEO Michael Butt said.

"They will not prevent a takeover,'' he said.

"However, the rights plan should encourage anyone seeking to acquire Mid Ocean to negotiate with the board prior to attempting a takeover.'' Mid Ocean vice president and treasurer John Wadson said the rights plan is a "defensive'' move.

Mr. Wadson would not speculate on whether or not an individual or company had approached Mid Ocean about taking a controlling interest in the company.

Asked specifically if EXEL had approached Mid Ocean, Mr. Wadson also declined to speculate.

He did say that EXEL was exempted because Mid Ocean would not want to disadvantage EXEL because of its pre-existing position.

EXEL senior vice president Gavin Arton said EXEL has a "standstill'' agreement with Mid Ocean limiting holdings to a maximum of 30 percent.

That effectively ends discussion of EXEL owning over 30 percent of Mid Ocean, he said.

Mr. Arton said he was not aware of any move to acquire EXEL's stake in Mid Ocean.

But if EXEL were to sell 20 percent or more of its Mid Ocean stake, the rights plan would be triggered.

Mid Ocean said that under its rights plan, each holder of ordinary shares at close of business October 1, 1996 will receive one right for each class A ordinary share held.

Each right holder can purchase from Mid Ocean one Class A ordinary share at an initial purchase price of $140.

If an entity acquires 20 percent or more of Mid Ocean common shares, each right will entitle the holder, other than the acquirer, to purchase for an applicable purchase price Mid Ocean common shares having a value of twice the purchase price.

If, following an acquisition of 20 percent or more of Mid Ocean's common shares, Mid Ocean is involved in certain mergers or other business combinations, or sells or transfers more than 50 percent of its assets or earning power, each right will entitle the holder to purchase, at an applicable purchase price, common stock of the other party to such transaction having a value of twice the purchase price.

After an entity has acquired 20 percent or more but before 50 percent of the company's common shares, Mid Ocean may exchange all or part of the rights for common shares at an exchange ratio of one class A share per one right, subject to rights holders delivery to the company an amount in cash equal to the par value of each class A ordinary share to be received.

Mid Ocean may redeem the rights at one cent per right at any time prior to a specified period of time after an entity has become beneficial owner of 20 percent or more of its common shares. The rights expire on October 1, 2006, unless earlier exchanged or redeemed.

Mid Ocean has also declared a quarterly dividend of 41.25 cents per common share payable October 18 to shareholders of record September 27.